Tim Swanson, who joined R3 full-time this year and is also a research fellow at the Singapore Management University, says the biggest challenge working with banks to design protocols for a working blockchain, the technology underpinning bitcoin, is managing expectations while at the same time pushing to build a working platform as quickly as possible.

"It is important not to overhype things, although it is too late on that," Mr Swanson said ahead of a visit to Sydney this week. "At Sibos [the global payments conference held in Singapore last month], everyone was talking about blockchain. Now, deliveries have to be shown to the world in the next 12 months, or people will walk away thinking this is a load of bumf."

A blockchain refers to computer technology that verifies transactions without the need for an intermediary. Its name is derived from a network of computers adding new "blocks" to a digital ledger. Copies of the ledger containing every transaction are held on the computers, the "nodes" of the network, which verify transactions by deploying cryptography to update the blockchain. It is a system that creates trust through coding.

"Many banks feel they can reduce, or eliminate altogether, various costs, by adopting some sort of common shared ledger and let that proliferate through the industry," Mr Swanson said on a Skype call from San Francisco last week.

Access undecided

While the "global fabric" for the R3 blockchain is being designed as open source, the way in which it will be accessed has not been decided, Mr Swanson said. Nor has it been determined whether participation will be limited to member banks. This will impact how the "nodes" verifying the transactions have to operate. R3 will also soon determine whether its tech team in London will be assisted by external partners.

Mr Swanson said member banks are interested in testing the R3 blockchain for a range of applications, including trade financing, processing syndicated loans, the settlement and clearing of OTC derivatives, and marketplace lending. "It's a big umbrella," he said.

But o get to the stage where any blockchain could be deployed with real customer money or data, regulators will need to sign off on the complex systems. This is one of the reasons that CBA helped to bring the Blockchain Workshops to Sydney this week.

"Just because you build some tech, it does not mean it will be used by financial institutions or will pass the smell test of regulators," Mr Swanson said. "If neither of those bodies are OK with it, it won't be used. The best way is to start from scratch, and build in [regulators'] specific needs.

Deliveries have to be shown to the world in the next 12 months, or people will walk away thinking this is a load of bumf.

Tim Swanson, R3 CEV

"The regulators I have interacted with in multiple countries have been very open-minded in thinking about how some of this tech might be used. Most regulators I have spoken to are 'cautiously optimistic'; they want to take a rightfully conservative approach to make sure things are delivered."

The Bank of England has published a detailed paper on blockchain technology and there are at least three researchers at the US Federal Reserve spending time on the concept. The Monetary Authority of Singapore is also supportive of development of the technology. A report earlier this year by Santander InnoVentures in collaboration with Oliver Wyman and Anthemis Group said distributed ledger technology could reduce banks' infrastructural costs by between $US15 billion and $US20 billion a year by 2022.

Mr Swanson said the technology could also assist regulatory monitoring for systemic risks in financial markets. "If we do our job right, what this tech can do is allow regulators to have a window into real-time data, which they can read and react to and create policy towards. If regulators have a window into what is going on, they can get a better idea of preventing systemic risks."

R3 has recently beefed up its teams with talent from some of the world's largest technology companies and banks. Its chief technology officer is the former executive architect for banking innovation at IBM; its chief engineer held that position at Barclays; while R3's lead platform engineer was a senior software engineer at Google for over seven years.